In this study nanoscale clusters of Li/MgO oxide with varying lithium contents are prepared via the sol–gel method. The preparation routine consists of co-gelation of LiNO3 and Mg(OCH3)2 in methanol/water solution followed by drying at 50 °C under vacuum and calcination at 500 °C in air. The structural and textural transformations that take place during oxide formation are studied with TGA–DSC–MS and FTIR spectroscopy. The obtained materials are characterized by TEM, N2 physisorption and XRD. Presence of increasing amounts of lithium precursor causes extensive hydrolysis of the alkoxide sol. Appreciable amounts of lithium ions can be incorporated in the magnesia gel even under the mild conditions during sol–gel transformation. Non-incorporated lithium ions form a separate carbonate phase, which has a detrimental effect on the surface area due to enhanced sintering. The Li/MgO oxide materials thus prepared possess high surface area (50–190 m2/g) depending on Li content. Small amounts of lithium ions, when present as a dispersed phase, do not seem to influence the structural and textural characteristics of the magnesia gel and, in these cases, nanoscale Li/MgO oxide clusters with high surface areas similar to pure MgO can be prepared. Sol–gel derived Li/MgO provides significantly higher olefin yields in ODH of propane in comparison with conventional Li/MgO catalysts, especially at lower temperatures.